Tristan transfers property with a tax basis of $900 and a fair market value of $1,200 to a corporation in exchange for stock with a fair market value of $900 and $200 in cash in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of $100 on the property transferred. What is the corporation's tax basis in the property received in the exchange?
A)$1,200
B)$1,100
C)$1,000
D)$900

Question

Quizplus · Accepted Answer

The corporation's tax basis in the property received is the transferor's adjusted basis in the property plus any gain recognized by the transferor. Here, Tristan's adjusted basis is $900. Since the liability assumed ($100) plus cash received ($200) does not exceed the fair market value of the stock received ($900), Tristan does not recognize any gain. Therefore, the corporation's basis in the property is Tristan's adjusted basis ($900) plus the liability assumed ($100), totaling $1,000. However, the correct calculation should reflect the initial basis plus gain recognized, if any. Given no gain is recognized, the oversight in explanation does not affect the outcome that the correct basis is the transferor's basis plus the liability assumed, leading to a corrected answer of $1,000, making the initial choice and explanation incorrect. The correct choice should have been C, reflecting a basis of $1,000, considering the transferor's basis and the liability assumed with no gain recognized.

Tristan Transfers Property with a Tax Basis of $900 and a Fair